California employees may claim unpaid wages, unreimbursed expenses, penalties, and interest via administrative complaints filed with the Division of Labor Standards Enforcement (also known as the Labor Commissioner’s office). Claims not settled are resolved via an informal hearing before a Deputy Labor Commissioner.
Appeals of unfavorable Labor Commissioner’s decisions are possible. They are, by design, burdensome and financially risky for employers. The Legislature intends the DLSE’s wage claim proceedings to be informal, prompt, and final. Therefore, as recent court decisions make clear, the financial consequences of unsuccessful appeals by employers can be severe.
Wage Claim Overview
The wage claim process begins with an administrative complaint filed with the DLSE. Following service of the complaint, the DLSE usually schedules a pre-hearing conference to explore settlement possibilities and otherwise amend or finalize the complaint.
If the case is not settled at the conference, a different deputy will conduct a hearing on the merits of the complaint. Attorneys may participate, but are not required. This hearing is informal, and does not strictly follow rules of procedure or evidence.
The deputy who heard the case prepares a decision, which must include a summary of the hearing, reasons for the decision, and any financial award.
Risks of Appealing
Either party may appeal the Labor Commissioner’s decision to the Superior Court within 10 days of the service of the order (15 days if the order was served by mail). This time period is strictly enforced. Different from a typical “appeal,” a superior court judge hears the case “de novo,” i.e., as if the DLSE hearing never happened. The parties can present testimony or documents not introduced at the hearing. The court generally will enforce rules of evidence and procedure more formally.
The de novo proceeding entails a number of risks for employers, other than the prospect of attorney’s fees. Below is a summary of the primary risks.
The appealing employer’s first procedural hurdle: it must post a bond guaranteeing the amount of the award within the deadline to appeal. Bond premiums cost money. In addition, as stated, the must be filed along with the appeal, on time.
The superior court may decide claims that were not raised at the administrative stage. As such, if the superior court finds for the employee, the award could be higher (or lower) than the Labor Commissioner’s.
Unlike at the DLSE, corporations must be represented by counsel in superior court. Therefore, employers must be prepared to bear the cost of representation at the trial de novo. On the other hand, the DLSE will often provide an attorney to represent the employee, if the employee does not have his or her own lawyer.
Interest accrues on the award, generally at 10% per annum. Therefore, even dismissing an appeal may result in a higher award than if the appeal had not been taken.
The greatest risk of appealing a DLSE award is being ordered to pay the employee’s attorney’s fees. Although employees are not always represented by private counsel, the court will award fees even if the DLSE provides the employee with a lawyer. The attorney’s fees award, often calculated as an hourly rate times hours expended on the appeal, may far exceed the amount of the wage claim involved.
According to a recent Court of Appeal decision, the court will award attorney’s fees against an employer if the employer’s Labor Commissioner appeal does not result in complete vindication. In that case, employer Danko Meredith successfully argued that the Labor Commissioner and superior court miscalculated a waiting time penalty of $4250, resulting in a reduction of the award to just $2250. Except for the late payment, Danko prevailed on all of the other claims that its former employee had asserted.
Yet, the Court of Appeal upheld the Superior Court’s award of $86,000 in attorney’s fees against Danko, and also awarded the employee more attorney’s fees on appeal. Why? Because under the Labor Code, if the employee prevails on just a part of the claim, the employee was “successful” on appeal and is entitled to attorney’s fees. “Successful” recovery is defined as “an amount greater than zero” under the Labor Code.
Tips for Employers
Employers should not appeal Labor Commissioner decisions unless there are strong grounds to completely prevail. Merely reducing an erroneous award is insufficient to avoid an adverse attorney’s fees award.
Employers must make a realistic assessment of Labor Commissioner claims when they are filed. The Labor Commissioner’s conference provides an opportunity for settlement, possibly before claims are amended. If the complainant may succeed on the merits, it may make sense to settle early.
Once a claim goes to hearing, employers should be prepared to win. That means hiring competent counsel, or at least preparing a strong case of live testimony and exhibits. Employers committed to taking the case to hearing instead of settlement must be prepared to accept the result of the hearing, unless the grounds for appeal are iron-clad and will result in total victory.
Once the Labor Commissioner’s Order arrives, employers must act quickly to assess the award’s merits, and the risks of winning on appeal. Counsel and client must work quickly to discuss the risks and, if appropriate, arrange for the required bond and appeal papers to be timely and properly filed and served.
Finally, employers who believe that the Labor Commissioner is not a hospitable forum may wish to consider arbitration instead (assuming the Federal Arbitration Act applies to the business). Even arbitration of wage claims can be an expensive proposition as well, with arbitration administrative fees and arbitrator pay. And even in arbitration, the arbitrator will award attorney’s fees to a prevailing plaintiff.